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Friday: Dell Misses, Is Goldman Sachs Stupid or Evil?

How can a firm that never loses money be so totally wrong?

Just this Monday, Goldman Sachs helped to gap the markets higher at the open in low-volume futures trading with the following pronouncement: "Goldman Sachs resumes coverage on Dell Inc. (NASDAQ: DELL) and gave DELL a Buy rating at a 12-month price target of $19. Goldman believes that DELL will benefit from a corporate PC refresh cycle and will show better earnings as DELL is trying to optimize its cost structure.  Goldman believes Dell will report better than expected earnings and beat analysts’ expectations. Goldman expects DELL to report earnings of $1.09 for CY2009 and $1.37 for CY2010 from their previous estimates of $1.07 for CY2009 and $1.35 for CY2010."  Fact is, they missed by a mile.

That report took Dell up 2% for the day and the Dow gained 150 points and we were dumbfounded by the move, both in DELL, who were swallowing a difficult acquisition of Perot Systems and of the market, which acted like $31Bn DELL is the same kind of bellwether that $120Bn HPQ is, even if Goldman's report had been even close to accurate.  As it was, they couldn't have been more wrong if they were playing "opposite day."  How is it that a firm that has only 3 losing trading days in 6 months can be this amazingly wrong on crucial analysis? 

So is Goldman actually stupid and, as many have implied, simply cheating to rack up their amazing market gains or are they intentionally manipulating the markets.  Former GS-employee Jim Cramer jumped right on the bandwagon on Monday afternoon and told viewers that "obviously,"  since DELL is going to do so well (because GS says so) that INTC and MSFT must be buys too. 

This is how manipulative stock pumping works – start a rumor, push it out through the media, extrapolate the rumor out to affect market-moving stocks that don't even have upcoming news events and then tell people they are missing an opportunity, even after the train has left the station (by Cramer's 2:30 spot on Monday, the Nasdaq had already hit the high for the week, peaking out exactly at the moment Cramer told his retail investors to pile into the market).

Were the beautiful sheeple only buying what Cramer's buddies were selling?  Is that how GS makes their money, buying low on Friday, making an upgrade on Monday, getting their pals to sucker people into the "rally" and then dumping into the retail frenzy?  Sure buying low and selling high is what you are supposed to do - but there's a fine line between good timing and manipulating the market and when you allow the single largest daily trader of stocks on the planet Earth to also be one its most influential stock analysts – how can you possibly draw that line? 

So, was Monday's call by Goldman an indication of how inacurate their research is and a scary indication that, perhaps, everything else they've been saying about oil, gold, the economy in general is also fundamentally flawed or are they just manipulating the markets with cleverly timed market announcements and then using their influence in the mainstream media to drive investors into positions which they dump at huge profits while wiping out ordinary investors?  Maybe it's all just a big coincidence, let's hide our heads in the sand and hope so

Speaking of manipulative market pronouncements, bond king Bill Gross decided option expiration day would be the best time to say that Chinese growth is likely to be hurt by an absence of consumer demand from trading partners such as the U.S.  “The Chinese, I suspect, will have a bubble of their own to confront,” Gross said in a Bloomberg Television interview yesterday from Pimco’s headquarters in Newport Beach, California. “It’s gearing up for export that doesn’t find an end consumer, that’s the real problem in China."

The “systemic risk” of new asset bubbles in global economies and markets is rising with the Federal Reserve keeping interest rates at record lows, Gross wrote in his December investment outlook, posted on Pimco’s Web site yesterday. The Organization for Economic Cooperation and Development and officials in Asia including Hong Kong Monetary Authority Chief Executive Norman Chan are also warning of bubbles in the region.  “With unemployment in the double digits and likely to stay close to that for the next six months despite job creation ahead, the Fed has nowhere to go,” Gross said.  His outlook asks:

OK, so where does that leave you, the individual investor, the small saver who is paying the price of the .01%? Damned if you do, damned if you don’t. Do you buy the investment grade bond market with its average yield of 3.75% (less than 3% after upfront fees and annual expenses at most run-of-the-mill bond funds)? Do you buy high yield bonds at 8% and assume the risk of default bullets whizzing at you? Or 2% yielding stocks that have already appreciated 65% from the recent bottom, which according to some estimates are now well above their long-term PE average on a cyclically adjusted basis?

Two suggestions. First, as emphasized in prior Investment Outlooks, the New Normal is likely to be a significantly lower-returning world. Diminished growth, deleveraging, and increased government involvement will temper profits and their eventual distribution to investors in the form of dividends and interest. As banks, auto companies and other corporate models become more regulated and therefore more like utilities and less like Boardwalk and Park Place, they will return less.

Where does that leave us indeed?  Not only is Bill Gross worried about China but Japan's Deputy Prime Minister Kan is worried about DEflation, despite runaway commodity prices.  “My understanding is that Japan is in a deflationary state,” said Kan.  “There’s a sense of crisis” regarding deflation, Finance Minister Fujii said today, calling on the central bank to respond to the threat while adding that rates are already “very low” limiting room for further monetary policy action.  The Nikkei dropped below 9,500 this morning, joined by the Hang Seng dropping below 22,500 as Asian stocks fell for the 4th consecutive day.  Even the Shanghai Composite fell today so we're feeling good about those FXPs I mentioned in yesterday's morning post

Over in Europe we are down about half a point ahead of the US market open (9am) as Trichet says the ECB may phase out some emergency aid in seeking stable prices.  “Not all our liquidity measures will be needed to the same extent as in the past,” Trichet said at a conference in Frankfurt today. “Any non-standard measure whose continuation would pose a threat to the achievement of price stability must be undone promptly and unequivocally.”  A separate Bloomberg survey of economists and real estate brokers showed British house prices will probably fall next year, and it may not take until 2014 to return to the levels at the 2007 peak of the country’s biggest housing boom.  

Nationwide Building Society Chief Executive Officer Graham Beale said the rise in U.K. house prices this year has been caused by a low number of properties available for sale and the trend may reverse next year, pushing property prices lower.  “The market is still overvalued, whichever measure you use,” said Seema Shah, a housing economist at Capital Economics Ltd., a research group in London, who was the most bearish in the survey. “Prices need to fall a further 20 percent to 25 percent to get back their long-term trend.”

The dollar is looking bouncy this morning and that will be good for UUP and all our bearish commodity plays.  We'll see how our levels hold up for today.  2 weeks ago I posted our expected 25% level targets for this move at Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,000 and Russell 600.  We're already failing to hold those lines and it's doubtful they will be taken back so it's time to look at our expected retrace levels of Dow 9,840, S&P 1,056, Nas 2,100, NYSE 6,720 and Russell 576.  Let's take failures there VERY seriously but, if we do hold them, then all this is just a healthy pullback off the top!

As we were then, we'll be watching the FTSE, who would put us globally bearish below 5,250 (right on the line) and the DAX, who would put us globally bullish above 5,750 (now at 5,650).  Dow Transports need to get back over 4,000 (now 3,956) and the SOX need to hold 300 (now 310) or we may be heading for a very nasty fall next week.   Hopefully it won't come to that but, meanwhile – let's continue to be very careful out there! 

Have a nice weekend,

- Phil


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  1. Tough times have even the upper classes singing the blues:
    Beamer Repo Blues:
    Woke up this morning, found my beamer was gone.
    Yes, I woke up this morning, and found my beamer was gone.
    I felt so bad, so low down, I threw my drink across the lawn.
    Help me Lord, you know I’m feeling so blue.
    You gotta help me Lord, I don’t know what to do.
    ‘Cause they done repossessed by BMW.
    Lord have mercy.

  2. type: "my BMW"

  3. Phil – To your point about options after selling puts; I sold VLO Jan 17.50 puts for 0.71 now 1.74.  I know there is a lot of time between now and Jan, but I want to weigh my options now.  1)  We are near a multi year low and there is still 0.57 of time value left to decay so sit tight & do nothing yet.  2) Roll to March 17′s for 2.00 for a credit of 0.26.  This would lower my net entry from 16.79 to 16.03 (I think this is correct).  I am inclined to go with #2.  What do you think?

  4. Phil -
    Thanks for the detailed discussion of the dia covers. Much appreciated. It might  be worth adding to the boomarks on DIA covers.

  5. EDZ back to $5.63 pre-market. Pick this up at this price before market opens?

  6. TNA down huge this morning.  Far outta whack with the RUT.  Some say a distribution in the shares, but $5 dollars down from close yesterday!?
    Not that I’m complaining I had a couple of bear put verticals that will expire nicely in my pocket.  Anyone know anything interesting?

  7. How is it that ICE matched trade executions on the US Dollar Index up to 85.18?   Can one imagine what derivative and future stops that move triggered?   My theory:   someone in the gang of 12 poked another in the eye!   I’m sure we’ll never know what happened, much less prosecute someone for what was clearly a crime of manipulation!  Cancelling the trades above 76.50 does nothing for all the other trades that trigger off of dollar movements.

  8. where – according to direxion site – no distribution listed

  9. ssdirk/Phil: i am in the Dec $17′s. What if we used yesterday’s suggestion but instead rolled our 17′s to MAR 16′s for $1.50ish? (hope this copy paste doesn’t go crazy)
    VLO/Tcha – 2011 $12.50 calls at $5.10, selling Jan $16 puts and calls for $2.15 is net $2.95 on the $3.50 spread with VLO put to you at net $18.95 less the remaining value of the leaps (currently net $14.85).
    VLO/Tcha – You are spending net $2.95 and stock is put to you at $16 so total $18.95  less, of course, the remaining value of the leaps.  This is a really good way to take a position in non dividend-paying stocks.

  10. ssdirk  I noticed your move on VLO . What interest me is why did you only sell a put? IT looks to me that you have a very strong intention you are satified to own the stock at 16.79. I did a simular move but sold the Jan straddle 17.5  1.11 / 1.23p feeling much more comfortable at the present position of VLO showing no loss. I feel it is always better to buy a strangle or straddle to show better results.

  11. ITMN is near one of its resistance points at 10.85.  I am picking up a few 7.5 Jan11 for 5.8.

  12. Yodi – my initial intent was to enter the stock using a put.  If I got assigned the stock I would then start a buy/write for a lower entry.  Since then I have become more bearish on the overall market.  In your last sentence did you mean it is always better to sell a strangle or straddle?

  13. Tough morning as "THEY" are claiming the dollar only went up due to some sort of computer error so much of what we saw pre-market may be reversed – either because that is true or because it’s a lie but a lie told by people with the power to jack up the markets anyway. 

    Our critical level sets are the 25% off the July consolditation lines of: Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,000 and Russell 600.  

    We’re already failing to hold those lines and it’s doubtful they will be taken back so it’s time to look at our expected retrace levels of: Dow 9,840, S&P 1,056, Nas 2,100, NYSE 6,720 and Russell 576. 

    We’re watching to see if the FTSE can hold 5,250 and watch RUT 585 as a good bull/bear indicator for covers and momentum indicators.  That should line up with about 43.50 on the Qs (2,150 on Nas) so that’s another indicator to keep an eye on. 

    On the whole, I don’t think we hold it and I think that THIS (the morning pump back on the dollar rumor) is the stick save.  It’s option expiration day and anything can happen though so we’ll have to stay on our toes.

  14.  TNA:  A $4.67 per share distribution, ex-div today.

  15. VLO/SS – Yes, too much time left, now way would I roll now unless you absolutely don’t want them.  There was just an article saying gasoline demand will NEVER go back to where it was in 2007 (Duh) and that’s not getting them below $16 so I doubt anything will. 

    DXD $30s just .40, I like those as a fun bet that we go back down (very dangerous).

  16. GM Phil,
    thanx for your detailed post yest. night,
    I’m little bit worry about my long trades HOV and UYG, how you recomend to hedge them (may be with some ultra?)

  17. Good morning cwan, we won game one in the rolling the SPX short CALL down yesterday.  There is the whole match to go.

  18. DIA/Samz – Good idea, thanks.

    EDZ/LLor – Still cheap at $5.58 and I still like them overall.  The Apr $2/4 bull call vertical is $1.50 and is $3 in the money with EDZ having to fall 30% before you don’t have a double.

    TNA/Where – No clue but let me know if you find out.  Must have paid a dividend or something as all their options now have conditionals attached. 

    Manipulation/LV – You said it.  If fact, the person who put in the manipulative crazy-assed trade gets their money back while the people who followed the move get screwed.  Ah capitalism….

    VLO/Mr. M – What’s with all the rolling?  Don’t any of you people actually like VLO?  Sure you can roll, or you can just sell the Jan $16 calls for $1.40 and make sure you buy the stock if it heads over $17 (or buy back the new calls).  You don’t have to constantly reposition every time the stock moves a little.  I’m selling the Dec $17 puts for $1 in anticipation of less flying and more driving next weekend

    Valero (VLO) to close its refinery in Delaware City, Del., taking a charge of $1.7B-1.8B, or about $2/share. The refiner will shed about 550 jobs – and operating expenses of some $450M. Shares +1.6% to $16.62.

    HOV, UYG/Tcha – With either one you can sell short Jan puts and calls but HOV is in a bad spot so not much fun to sell unless you want to sell Jan $5 calls for $1.10 and you can also sell Jan $5 puts for $2.10 and that’s $3.20 back so the most it will cost you if the stock is put to you at $5 is another $1.80 of cash, which would give you about a $3 basis.  If you are called away, it’s a huge gain.  UYG is in a better place so you can sell Jan $5 puts and calls for $1.05, which is about 20% in 3 months.  If you can collect 20% every 3 months and there are strikes down to $2, what do you care if UYG goes up or down?

  19. Phil, Do you have an opinion on ENER?

  20. Damn, too slow on the DXDs

  21. Phil,
    My positions in TWM: Bought April 33 calls for 4.10 and sold april 36 calls for 2.73. Bad entries I know.
    What are your opinions on salvaging this?

  22. or ELMG?

  23. Peter D – please continue to post your SPX strangle commentary.  I am following – only on paper at this point – and using much wider band.  Currently set at 1170 and 950.

  24. D.R. Horton (DHI): FQ4 EPS of -$0.73 misses by $0.43. Revenue of $1.01B (-34.6%) vs. $1.11B. Backlog of 5,628 homes vs. 5,297 last year. Net sales of 5,008 homes vs. 3,977 last year.

    Former Fed Chairman Alan Greenspan and Paul Volcker say they’re opposed to auditing the Fed, noting the measure would destroy the central bank’s independence (.pdf). Fed chief Ben Bernanke told Congress in June that Sen. Ron Paul’s provision "would effectively be a takeover of policy by the Congress and would be highly destructive to the stability of the financial system, the dollar and our national economic situation."  This is so great!  Bless Ron Paul….

    Damn, that was a short trip on DDMs.  They didn’t move much anyway so next try will be DIA $103 puts at .20.

  25. UYG — I read what you said to TCHA — I own the UYG shares and am short the Jan. 6 calls against.  Sold them at $0.40, so I’m up on them but down a bit with the stock.  Would you also sell a put against these?

  26. partha, your paper trade SPX 950/1170 strangle looks so good for expiring worthless.  We are staking out the 1150 strike for the short CALL, trying to get another $2 credit if we roll the 1170 to 1150.  Just being greedy.  The 950/1170 is on track to achieve its objective.

  27. Phil
    A month or so ago I bought 300 shares of AIB at 8.53. and sold the 7.5s in a buy/write. A day or so later, the stock plunged and am now in the Feb 5s at $1 for the call and $.90 for the puts. The problem is that I sold 8 of each, and I am really exposed to the upside. Should I leave it alone or buy back some of the calls? Thanks

  28. allen thanks for posting your results yesterday – it’s very interesting that you can generate a $21 theta with virtually zero delta that way. Thanks for sharing :) I guess the trick is to spend less than $21/day adjusting your hedge, if you have time I would love to hear how it plays out.

  29. Looking to start a position in SVA ? Whats the best way if any?

  30. Peter D – That was Dec SPX.  I will follow and try one more set of stranges.  and follow your rolling to get a feel for how this drives.

  31. Phil/TNA – Some sort of distribution, but seems like a huge percentage given the small cap nature.  Anyway, after a little while the options reset to the equivalent lower value and I am where I was yesterday.  Hopefully expiring in my pocket.
    P.S.  This is one of those Peter D inspired custom butterflys where I paid for my bear put spread by selling a call at a much higher value.  Gave a nice margin of 15% on the upside.  Still something to watch closely though as options on these 3X’s are crazy volatile!

  32. Phil: EDZ I have stock base 6.59$, would you sell some premium ?

  33. Hey the VIX surprises me, being down 1% on a down day (working down the spike yesterday).  Don’t get me wrong as I like these kind of surprises as it’s good for the short options sold.

  34. partha/SPX, yes we are dealing with December only as Nov has expired this morning (last trading day was yesterday).
    where, with the leverage ETFs, I try to have 2x or 3x cushion versus the indices.
    Leverage note from TOS that they sent out to everybody (we have 2 more weeks of lower margin):
    Special note: As of December 1, 2009, the maintenance margin requirements of leveraged ETFs, and initial and maintenance requirements of their options, will increase commensurate with their leverage, not to exceed 100% of the value of the ETF. This impacts day-trading, portfolio margining as well as standard margin accounts.

  35. AMZN- Now that we are going to be past Nov opex; I am starting to think about my options re: short calls. I have – all Dec- 1 105; 1 110; &  2 120′s. Basis is $3.65; $6.58 & $4.45 respectively. Sitting tight for now – planning on rolling forward until sanity returns. Other action I could take under consideration?

  36.  Peter D,
    I was late getting into the Dec SPX plays, now the only thing I can do is the 975 put. Does not make sense to short the 1150 calls, and I picked 1050/1060 put spread is also going up? 
    Any suggestion? or just sit tight? I have no illusion for 1050 to get back as you pointed out previously, but 3.25 is too low :-(

  37. Phil, Your recent comment on portfolio balancing 70/30 or 60/40 etc depending on our bullish/bearish sentiment was a masterpiece of simplicity. I would like to improve my own performance by better choosing dogs. Being an optimist by nature I always find bullish stocks, but do not have a list of dogs that are underperforming and have bad management, etc. In other words stocks based on fundamentals should head to zero.
    Whenever i try to short stocks that have good business models regardless of valuation I get burned. So I would like some 5 Co’s (dogs) that I can study and set alerts on. Thanks

  38. Phil,
    Considering bottom fishing with UNG, your thoughts? I am definitely a bear on NG prices for the next year or two but it seems pretty cheap at the particular moment….

  39. RUT, looking at RUT December short strangles, I don’t like selling the RUT Dec 620 CALL, but that’s the best strike to have some downside protection if we have strike 520 or 530 for the short PUT.  Any thoughts, folks?

  40. Personally for hedge I prefer to buy EDZ, ERY, SRS, DXD and sell calls and puts against them, it is the same kind of hedge only theta is very good (time working for you not against you) and because I know myself and ussualy overtrade, this way I don’t touch them a lot.
    Tchayipov: You posted this late yesterday when discussing hedging a buy/write portfolio but I don’t understand.. Why do you say the utlras have theta that works for you and not against you? I would think that since they are leveraged they have even more theta loss.

  41. Peter
    WE had a discussion about your play with SPX the other day. Even that it might be a very safe play I still see only selling one Dec option I get hit by a margin of 15,642.00 do you experience simular margins with you play or am I just on the wrong side of the fence with TOS. You look at a credit of 548.50 to get pinalized with that kind of margin? My acc with them is relative large which could not be the reason neither my qualifacation on option trading?

  42. Allen,
    I would just guess that since Tcha is selling the p + c that the premium decays faster so it is working in his favor.
    Not as experienced as you guys though.

  43. ENER/Ac – They don’t make money now, they will not make money next year and they are not projected to make money in 2011.  If they came to you for a loan, would you give them one?  I never understand why people buy stocks in companies that they wouldn’t lend money to… 

    TWM/Jomp – You can roll the caller down to the $30s ($4.50) for +$1.60 and then you can roll yourself down to the Apr $27 calls ($5.70) for +$2 and that puts you in the lower $3 spread for net $1.77. 

    ELMG/Ac – At least they make money but I don’t know them and I don’t know why they dropped almost 50% since October but if you remind me on the weekend I’d be happy to check them out. 

    UYG/Jcm – The point is to have a consistent, long-term strategy.  Selling the puts as well lets you be more aggressive on your call selling, which protects you better.  With the stock at $5.62, selling the Jan $5 puts and calls for $1.10 drops the basis to $4.52/4.76, so you would be having a nice, relaxing time now with UYG falling off a bit.  If it zooms up, of course, you have a limited upside but not losing is a good thing, not a bad thing. 

    Everyone wants to be Babe Ruth in the markets but people only remember Babe Ruth hit a lot of home runs.  The fact is he also walked more than any other player who ever lived because he didn’t chase bad pitches and his lifetime batting average was .342, one of the best in baseball history.  Over 2,100 of his 2,800+ hits (75%) were NOT home runs.  If all you ever do is try to hit home runs then you are Dave Kingman, not Babe Ruth…  Swing for average and the home runs will come – Ty Cobb won the triple crown with a .377 averag, 107 RBIs and 9 (NINE) home runs – ALL inside the park ones!  That guy NEVER tried to hit a home run but accidentally led the league.  Trade like a hall of famer, not some guy trying to impress the chicks by hitting one out of the park.

    AIB/Drum – You can set stops but you don’t need to buy out the callers really.  If you get worried you can buy the May $5s to cover (now $1.55) rather than pay $1 in premium to take out the Feb callers.  That way, if they spike up and fall back down, you can stop out the May calls and get bearish again.  Figure $800 will buy you 5 May calls when/if you need them and just keep the play ready if you need to adjust.  If AIB zooms up from there, you’ll have more than $1,500 worth of stock and the puts will expire worthless so you can DD on the May calls and roll the callers to 2x March whatevers.

    SVA/Stock – They are up on flu mania, I’m not sure if that’s a solid bull premise AFTER they have gone up 1,000%.  You can buy the Apr $7.50/10 bull call spread for .75 and sell the Apr $5 puts for .55 so you are in the $2.50 spread for net .20 with the stock put to you at net $5.20 if they fall.  That’s about the best hedge I see for an entry and it pays 12.5:1 if it hits so a reasonable gamble as long as you actually want to own these guys if they crash back to $2 at the end of flu season.

    TNA/Where – Yeah, I figured something like that. 

    EDZ/RMM – You should never be in those things if you aren’t selling premium!  You can swap the stock into to 2x the Apr $3s at $2.80 and sell the Jan $6 calls for .80 and the Jan $5 puts at .55, which is collecting $2.70 per currrent long position even after taking $1 off the table.  That leaves you in the $3 spread (plus 90 days) at net $1.45 so you make 100% at $6, which is a damn site better off than you are now.   This is a good play from scratch too.

    DIA $103 puts done at .30.

  44. AMZN: Phil, I second pstas comments regarding AMZN. I am short far too many Dec 110 AMZN calls and just trying to wait patiently.These were left over from the 100KP but I somehow had the Dec’s versus Nov’s. Any advice would be appreciated or I can continue to sit tight for now.

  45. Allen/ theta
    because you buy them as a stock and sell puts and calls against it (short calls & puts have good positive theta and stock itself has theta zero)
    if compair cost of this hedge per 1 unit of delta – it is more expencive than buy DIA puts, but it is generating good monthly income.

  46. Phil Re Dell Are they worth a buy write? The market reaction seems a bit excessive.

  47.  Phil / the Babe: Wise words and a great analogy for trading. I’ve printed that out and tacked it below my trading rules. It’s now just under the last rule I added to the list: "Just because housing data is bad, does NOT mean lumber futures will necessarily go down…".

  48. yodi, that’s the correct margin.  As I explain yesterday, short strangle is a different kind of play where we layout a large amount of money (in margin) and aim to make 2.5% a month.  If you have more than $125,000 in the account, you can apply for Portfolio Margin (PM).  You’d need to get past ThinkOrSwim background check that you or your spouse have 3 years options trading experience.  With PM, the same Dec 975/1150 short strangle currently needs $1,800 in margin and the max margin is 2.5 times less than the normal account.
    Don’t let the large margin give you the wrong impression on the potential profit.  The buy/write scheme gives 5-10% profit when the short CALL and PUT are sold ATM (At The Money).  If the market drops 5%, the profit on buy/write is zero to 5%, while the 975/1150 short strangle gives the full 2.5% profit.  The more extreme case is when the market drops 10%, buy/write could loose -5%, while the short strangle gives 2.5% profit.  Now you can see the power of this scheme.
    So chaps and other folks on buy/write, we should sell the short CALL ITM to give downside protection and short PUT OTM.  This is stressed in the MacMillan book for total return.  Unless we start the buy/write at a bottom where we get 15-20% for the short straddle, it’s better to sell ITM to have downside protection.

  49. Allen/ hedge
    another issue about buy ultras and sell options against them: because this strategy has limited profit it is hedging your portfolio very well if correction of the market is smal (5-10%), for big correction it doesn’t do good job unless you buying back some short calls during correction, so probably good idea to have both kind of hedge strategy ( some long DIA puts)

  50. The actions that the Congress made possible "TOO LATE" but made possible last fall were absolutely necessary to breaking the back of this financial panic….

    TOO LATE, Geithner’s own words at yesterday’s hearing

  51. Theta/Tchay: Oh, I think I see what you are getting at. So instead of using put options on the DIA or SPY as a hedge you would buy a bear ETF and sell p’s and c’s against that. Yes that would take a lot more cash to buy the ETF but you would get income from the hedge and the hedge’s theta does not take away from the theta you are trying to generate from the buy/writes.
    I think I can see how this could work if the market does not move too much. But would this make adjusting far more complicated – not that i really know how to do that yet but I’ll learn. I understand the concept of selling the calls. If the market goes up above the call strike price you lose your hedge but you collect the call premium and then simply put the hedge back on. But what if the market moves below the strike price of your puts? Oh, but then you are saying that at expiration you will have more of the ETF put to you so you will automatically have an additional hedge. But won’t this mess up the beta weighting in TOS so that you don’t really know if the buy/write portfolio is hedged or not until expiration?

  52. Peter – I have only been skimming the conversation about the SPX, SPY and RUT short strangles.  You have definately picked my interst.  Can you go over your current play one more time?  Thanks.

  53. balancenv, I know what you mean.  The SPX 1150 CALL is $3.15, 1160 is pathetic at $1.8.  Now I need to look at the 1140 CALL at $4.55.  It’s kinda chasing, but the same psychology is in play now.  Do we think the market would drop 5% from here, to 1040?  If yes, then we should be in the 1140 short CALL, and dare I say, even the 1120 short CALL.  But since we don’t know where the market is going, and we want to minimize risk, we’d stick to the 1,150 strike for now.  Since our short PUT is still way OTM, we can afford to be conservative.  Oh, you should sell the 1150 short CALL, as it’s the best option today.  You might regret it if the market zoom up 5%, but that looks unlikely today.

  54. Hi Peter,
    On SPX well this is quite a lot different in margin and you well on the point thanks now I look at your play much more positive>

  55. Chaps/Allen/Tchay and others looking for buy/writes that have decent premium and don’t move much GILD has been very, very good to me.

  56. ssdirk – oh man, I could not write anything better than the posts yesterday and this morning.  Now I’m off for meetings for the next 3 hours.  All my November positions were taken care off, so it was a smooth expiration month. 
    Later all!

  57. 11 am Dow volume is 122M, pretty good today but expiration days usually are. 

    VIX/Peter – I think they are pinning 22.50.

    AMZN/Pstas – You just want to roll to max premium.  You are in for about $20 avg on 4 and you can roll to Jan $120s at $13, either rolling 1.5x to put them in 50% premium of rolling 1x and selling Apr $110 puts for $6.20.  I like the spread because you are selling $11 in premium, double what you sell with just the calls and I know it is very tempting to just play AMZN to die but they’ve been super-solid since they went up and it’s going to take a lot to shake all those investors that came in above $120 out of that stock. 

    Dogs/Jamie – Remind me on the weekend.  To me, AMZN is a dog that shouldn’t go higher and can go lower if the market fails.  I think CRE is way overvalued, which is why we play SRS up and EDZ is how we play the fall of China (or any other BRIC country that want’s to die) and UUP is how we play a rising dollar, which is market death in general.  

    UNG/Jrom – We are WAY far from a possible bottom in UNG.  $2 is cheap, $3 is fair, $4.40 is only cheap the way an abused wife thinks here husband must love her becasue he hit here with an open fist this morning.  How many times have you heard the phrase that America is the Saudi Arabia of natural gas?  Do you know how much a gallon of gas is in Saudi Arabia? It’s 90 cents!  Nat gas is a local item and we are almost completely out of storage space.  You have to cap wells to STOP gas from coming out and prices fall very quickly when the supply/demand ratio inverts. 

    PCLN is becomming a very tempting short.  I’m liking the Dec $185 puts at $1.90 as a first stab at them.  Figure 1x here, rolling to 2x in Jan if they keep going up and 4x in Apr as I’m pretty sure they pay off one day.  EPS estimates are running away and they are pretty much priced to perfection.  Also, at this price, it’s pretty likey company will either sell some stock or try to buy someone else for stock as they have to be worried about keeping up this growth internally

    RUT/Peter – Why not sell 1/2 the Jan $620s for $9.50 instead as those can be rolled to 2x the Jan $640s (now $4.90) or 2x the March $690s (now $5) and you know you can adjust around a move like that (up 20% near ATH).

    AMZN/Allen – Same for you, I like the put and call spread best, selling max possible (realistically) premium.

    DELL/Magret – I see no compelling reason to buy them above $13, maybe not even then, their margins were terrible.

    Rules/Never – LOL, that’s great.  I do highly recommned putting post-its or whatever around your screens to remind yourselves of things like that – one I used to tell people to put on their monitors while the market was falling last year and everyone wanted to catch a falling knife was "It is NOT my job to save the market" – that may come in handy again soon.

    Oct. Mass Layoffs: 2,127 mass layoff events (at least 50 workers), resulting in 217K job losses. That’s down 434 from September – and down 77 Y/Y.

    Chinese officials said on Friday that moves to cautiously tighten the country’s loose-money policy would begin at year-end, but added that changes would be small. Separately, Sen. Charles Schumer asked the Commerce Department to launch an investigation on whether the yuan’s dollar peg constitutes currency manipulation.

    Morgan Stanley (MS) wraps up a disaster, surrendering Crescent Real Estate Equities – which it bought at the top of the market for $6.5B – to Barclays Capital (BCS). Morgan got the 17M square feet of office towers, resorts and hotels in 2007 with a $2B loan from Barclays that comes due today. MS has already taken $951M in writedowns and other losses from Crescent.  Oh yeah, CRE must be doing great, that’s why MS takes a $3.5Bn loss dumping assets

    Asset bubble warning watch: Nouriel Roubini says "there is the beginning of a bubble" and that part of a 70% jump in crude prices this year is speculative, "money chasing commodities." And Hong Kong central bank chief Norman Chan says with abundant liquidity, they face the risk that assets will become more disconnected from fundamentals.

  58. allen/ hedge
    I don’t sell just calls, I also sell puts (and it make this strategy even more profitable) if it wont be a correction and I will assign more stocks (because of short puts) I will sell calls and puts again and make this hedge even less expensive
    I don’t worry much if total delta of portfolio fluctuate 3-5 %, but if it is a big deal for you, you can adjust it with just DIA or SPY puts,
    also see my post at 11:24

  59. AMZN….short to much ? ….nobody is feeling pain in AMZN….except us shorts… is right now a feel good stock ….as it gets lower… fear will be a factor in pushing it lower and people will start to question the value and their long position ….history is on our side …….examples ….LVS….WYNN….X…coal stocks…….sell your self on it ….make a case for buying AMZN…convince your self to buy high and sell it higher ?…I can not find reasons to believe

  60. hi Peter, which Macmillan book are you recommending please?

  61. Phil,
    do you think there is more to come out on the SPWRA accounting issues, or did the company make the announcement after they knew the full impact?

  62. WOW, PCS today has a very good move up (it was recomended by opt for swing trade)

  63. SSDIRK
    thanks for GILD – it sure has been solid over the last year
    Good premiums too

  64. Phil,
      Re: PARD--How did you decide to sell your long position and go naked on your short calls? I was afraid that if the results were positive I’d be screwed on the short calls. This is a common problem in biotech where the chance of negative results is much higher than positive ones, but one positive result can really move a position against you quickly.

  65. Due to uncertainty over health care, near-term premiums seemed pretty good on UNH (current price about $28.61). I first worked the long side, buying Jan 2011 17.5 calls and 35 puts for 21.45. So that’s $3.95 in premium for a spread with $17.5 of final value. The front-month premium (extrinsic) on the Dec 29 straddle is currently $2.54, so I’ll be selling front-month straddles against the long spread.

  66. In recent months, the FDIC has been hiring hundreds of staffers in Irvine, Calif., and Jacksonville to work on its asset sales. The insurer is also expected to start interviewing prospective bond underwriters by yearend. Meanwhile, there’s talk that some of its deals could involve non-mortgage consumer assets. Expectations are that the FDIC will guarantee the transactions, in a move harkening back to the government’s disposal of commercial-mortgage assets inherited from failed savings-and-loan institutions in the 1990s.

    FDIC on a hiring blitz, this cant be good.

  67.  Phil,
    After the close, please help advise on CTRP and TTM on buy/write, ‘long term’ strategies. CTRP is the #1 online travel agency in China, everyone and his brother use its service. TTM is the maker of Nano car in India. They recently up the production by 20% to clear the backlog. 

  68. Phil,
    Support at 580,1088,10,250  what do you see for the day, flatline or stick ?

  69. Do you think these are still good levels to buy RIMM as a long-term hold. I know, I know. You liked them more at $55 but just answer the question. Haha . I’m only holding a 1/4 position (25  shares) at $76.14. Or would you recommend a put sale. If I picked up 75 shares here at $60 and then sold a Dec. 65c for $2, and it hit that target, I would be up about $3. What I am concerned about is if the market continued to sell off hard, how much could it drop? Do you think it has found a nice bottom here or would it be forced down with a sell-off regardless? I’m somewhat eager to take on a full position (100 shares for me at this price) so that I can write calls against it to recover loss and "Get Back to Even!!!" LOL Thanks Phil.

  70. Hi Phil,
    In the following trade, do you own the underlying ETF at all?
    "UYG/Jcm – The point is to have a consistent, long-term strategy.  Selling the puts as well lets you be more aggressive on your call selling, which protects you better.  With the stock at $5.62, selling the Jan $5 puts and calls for $1.10 drops the basis to $4.52/4.76, so you would be having a nice, relaxing time now with UYG falling off a bit.  If it zooms up, of course, you have a limited upside but not losing is a good thing, not a bad thing. "
    or in general, when u mentioned to sell puts and calls, its straightly an all options play, no underlying stock or etf, right?

  71.  BTW, for TOS users, $1.25 per contract is the best I got from, as " The simple answer is that Ameritrade has begun to limit my ability to change rates.  To go to $1.25 per contract we look for 1,500 contracts per month and to go to $1.00 we look for 2,500 contracts per month. …" 

  72. Phil, when you say you roll the PCLN put,  you mean that you sell the dec $185 put and buy 2* say Jan  $200?

  73. balancenv/ commison
    I just call them week ago and said that I’m member of PSW and they give me $1.0 without any problem

  74. Aclend you may want to see what happens to RIMM on early next week and how much relative strength it has versus the market. It has been pretty wild recently, and possibly today is all about the pinning at 60. I would think if you pick up your extra shares at 61 you wont miss the dollar versus if you wait and it looks like it goes back into a decline toward the low 50′s or further.

  75. Phil, do you plan to give new picks for 100K this weekend?

  76. Phil – on your RUT suggestion.  Do you mean sell 1X the Jan 530 put and 1/2X the Jan 620 call?  Or are you saying sell 1X the Dec 530 put with the 1/2X Jan 620 call?

  77. For any of you interested in the PeterD’s strategy -
    There is also the e-mini future ES – think he mentioned it in another post -
    The e-mini is a future on the S&P but with only a 50X.

  78. phil i sold $15 WFR puts for $1
    Should I convert it to a buy write, rolling the puts forward?

  79. WFR – Phil I have WFR apr 12′s naked.  Would you leave them or roll or cover?  I appreciate your help.

  80. what is the symbol for e-mini

  81. balancenv
    Like you stk TTM could have good potencial I think they selling that car for 5,000 or so I set up a Jan straddle 15c/p @2.25 covering you 12.75/17.25 stk trading at 13.71 for the weak at heart you can cover the down side still by buying a 12.5 put same month for 0.50 obviously taking you rprofit dow to 1.75
    The CTRP do not make sence American Depositary shares no China travel agent???

  82. Balancenv/Tcha
    are these prices without any "ticket" fees? What is the min# contracts per month for these rates……..thanks.

  83. MTXX – getting aggressive with the FDA.  In essence MTXX says that the FDA is not releasing data so that all can understand the problems.  Not usually a good thing to challenge the FDA.  Being a BIG gambler on this one.  I am willing to buy a few shares here to put my toes in the water.

  84. Phil have you gone home as the market has gone to sleep or is my sceen stuck? Will it go up or down at 3.30PM?

  85. Hi, Peter D,
    Great move!  Thanks for your suggestion yesterday.  I’m looking to sell some puts now.
    As far as ETF margin requirements, I believe this came from SEC or some govt agency, and affects all brokers.  Some brokers may implement the requirements sooner, though.

  86. Phil: sell-off before closing ? It’s OPEX day.

  87. Lynn – ES

  88. ocelli/ commision
    TOS give just $1.0 per option (no ticket fee) for PSW members (no contracts limit)
    at least it was week ago

  89. aclend, i still love the RIMM 55 2011 puts at 10.5 when available.  It doesn’t take much for these to bounce down to 8.5 or 9.  If RIMM goes to 45 someone’s gonna buy them.  RIMM has juicy premiums, so owning the stock and selling calls is not a bad way to generate income as well.   But at 9 i will probably buy my RIMM puts back – rinse and repeat.

  90. lynn – esz9 or esz09 – they are futures so expire, es is for emini, z is for december and 09 is for 2009

  91. I meant ES indicates the underlier is S&P500.

  92. Hi Phil: I bought BMY for the dividend at $21.38 (now $$24.25) and sold Dec. $23 calls for $1.03 (now $1.40) and sold Dec. $23 puts for $1.48 ( now $.21) I just closed puts & thinking of selling  Jan.$24 puts for $.94.What’s your opinion?
    Thank you

  93. Thanks for the article newp

    MA… you’d think they were being bought by Buffet for 230 a share..

  94. FTSE finshes at 5,251 – total coincidence, I’m sure…

    SPWRA/Boonie – There’s the inevitable shareholder lawsuits, those are usually no big deal but they keep things negative for quite a while.  As near as I can tell the company uncovered bookkeeping irregularities in one of their many divisions during a bookkeeping audit and they immeditately notified the SEC and made the proper filings.  It has zero impact on their business other than the consideration that this division wasn’t as profitable as they thought.  It seems like about $15M in adjustments and even if they had to write off all $15M as a direct loss, it would only impact profits by about 17% and they dropped more than 20% (and it’s possible some of their earlier drop from $33 was due to people who knew this was coming – institutions reduced their holding 5% last Q).  This is how you buy good stocks cheap – wait for a problem and then buy.  TM is getting there for us as well (we were hoping to buy at $75ish).

    PCS/Tcha – Opt nailed that one!

    PARD/Japar – I figured even if they flew up from $8 that I could find a way to roll and cover the longs with the expectations that the initial excitement wouldn’t last.  They were already pricing in a good study but even if the study was perfect, they still need to partner up for production, marketing, distripution and then you have to get doctors to start using the stuff (ie. bribes) and, since I do want to own them on a good study, I’d probably go long and roll, roll, roll the front months.  Overall though, you just have to play the odds.  While you WISH that your biotech will go up 3x on a study, the fact is that 29 out of 30 DON’T so the odds on those plays favor buying on pre-study sell-offs and selling into pre-study excitement.

    UNH/Chaps – I like that.  There’s nothing in the Health-care reform that really seems to hurt them.

    FDIC/Kustomz – Good point and the mortgage noise could be a cover-up for them prepping for massive bank siezures.

    CTRP/Balance – Boy they are high!  I’m really skittish on ADRs.  Last time they were at $70 they fell to $40 very quickly so I’d want to be caustious and go with the 2011 $55s for $21 and sell the Jan $65 calls for $9 and the Jan $55 puts for $3 for a net $9 entry on the $10 spread, put to you at $64 less the remaining value of your leap if they fail $55 in Jan.  Above $55, the $12 you win is plenty to roll down to the 2011 $35s (now $34.50) so if you want to own the stock for less than net $60 (most likely), this is a good way to go BUT I would rather wait for them to just fall to $50 or lower than pay 300% more than they were this time last year. 

    TTM/Balance – They may sell a lot of cars but they don’t actually make any money.  They are a little bit shades of GM where they made $9Bn worth of cars in 2007 and made $350M but making $14Bn worth of cars in 2008 cost them $1.2Bn.   They do not expect to make money next year either and they have $14Bn in debt with maybe $3Bn in cash and investments.  As I said earlier about another company - would you lend them money?  If I were selling cars for $2,500 here I’d have to add 20% more production too but that doesn’t mean I make money selling cars.  It doesn’t work economically for companies to sell you $1,000 washing machines or refrigerators in company stores so how do they expect to seriously roll out $2,500 cars profitably?  HOG drops 10-15% to the bottom line and has a 50% lower p/e (assuming TTM ever has an /e again!). 

    EOD/JRW – Probably flatline but trying to guess an expiration day is a crap-shoot (note the lack of picks).

    Lots of fun pin action:  AAPL $200, BIDU $425, AMZN $129 (maybe they push to $130), CAT $57.50, FSLR $120, GOOG $570, ISRG $275, POT $115, SHLD $72.50, SNDK $20, V $80, MA $230, X $40, BXP $65, EBAY $22.50, FAZ $20 (XLF $14.50), FAS $75, GS $170, JPM $42.50, MOS $55, MSFT $30, VNO $65 – just a coincidence, I’m sure…

    RIMM/Ac – I love the fact that I can say something like "I love RIMM at $55" over and over and over again but when they are falling back to the lows, like yesterday, nobody wants to buy but on the bounce back the next day, people get interested again…  Well, all is not lost as you can still sell the Dec $60 puts for $4 so close enough.  If you buy 75 shares at $60 you spend $4,500 and selling $65 calls for $2 gets you back $200 plus $375 if called away less whatever extra you owe 25% of your callers.  Selling the $60 puts for $4 puts $400 right in your pocket against $3,000 in margin and if you get assigned at $55 you are down $100 whereas your other position would be down $175. 

    RIMM – I like selling the 2011 $40 puts for $4 and buying the 2011 $55/65 bull call spread for net $4.40 so it’s in for net .40 on the $10 spread (2,400% upside) and RIMM would be put to you at $40.40 if they drop more than 33%.

    UYG/Lynn – Yes, JCM already has the UYGs.  You can do this strategy naked but it’s an added risk.  If you plan on being an investor for more than 6 months, then a couple of sales like this drop your basis to about $4 and you would no longer be upset at all if you get called away.  This is a play I like on beaten down ETFs that we don’t feel are likely to lose more than 1/2 of what they have left.  You have a reasonable chance of working the basis down to $2 on the longs and, at $2, if you sell just .10 per month in premium, that’s a better than 50% annual ROI.  TOO many people look at these trades as if they are only good for the period you are looking at.  You have to learn to think about a 2-year and longer plan – it really helps to put the little dips into perspective…

    TOS/Balance – That very much sucks.  Unfortunately, their platform is still the best and the execution is very good.  Maybe you need to let Tchayipov handle your negotiations!  8-)

    PCLN/Magret – No, that’s just buying the Dec puts.  If those lose about 50%, I will likely move to Jan puts and take a 2x position (so I only have to make .50 per contract to get even) and then if I lose 1/2 of that, I would have a $1.50 per contract loss, which I would roll to 4x another put where I would need to gain .75 to get back to even.  So any pullback between now and April that makes me more than $1 on on my contracts will make me happy and that’s something I’m willing to play for. 

    $100KP/Tcha – No, I do not.  We will add plays that seem good at the time.  Today I would have gone with the PCLN puts, the EDZ spread and the UYG buy/write.  On Monday it will be whatever looks good on Monday.  Sadly for many of you, learning to be patient is going to be a very big part of this exercise.  In Q1s $100KP, we only used about 25% of our buying power in the first month.

    RUT/SS – I was just suggesting to Peter that, rather than sell the Dec $620 for $3.60, I’d rather sell 1/2 as many Jan $620s for $9.20 as I don’t see particularly more risk in giving the extra month compared to the much higher premium collected.  I don’t play those indexes the way Peter does, if I’m going to do a spread its usually because I’m target oriented and I think there is a very good premium being paid for my range.  Frankly, for Jan, I kind of like a butterfly like buying 2x Jan $570 puts and selling 1 $610 put and 1 $530 put for net $925 and that pays better than 3:1 at $570 with a break-even between $540 and $600.  I like those because if you are on target just half the time you do well and, of course, they can always be adjusted along the way. 

    WFR/Foss – I’d roll them out to the Jan $14 puts and calls at $2.80 (about even) and then you can buy in if they go over $13, which is net $12 as you collected $1 and use $13 as your downside stop.  If they go up and up, you get called away at $14 with a $2 profit.  Damn site better than being down $2. 

    WFR/BG – I’d do the same play as above if you want to own them.  You can roll them to the Jan $12.50 puts and calls at $2.20 (+.40 to you) and buy in at $12.50 (about net $11 to you) and be happy with a 10% profit if called away. You could just leave them too though, don’t forget SOX got downgraded by BAC yesterday so they are just down with the sector. 2x the 2011 $7.50 puts is $1.80 so I wouldn’t be too worried until that spread goes below even for you. 

    Home/Yodi – Nope, just typing away.. Yes, definitely up or down – I think you have nailed it!  8-)

    Sell-off/RMM – Ask Yodi, he seems to have a handle on it.  Actually volume is 157M at 2pm so a bit stick-heavy but S&P over 1,088 is good for a move up.  It’s RUT 585 that needs to be warched but I think too many of the big guys are pinned to get a good move in either diection going without A LOT of money thrown in and I don’t think they’ve got the ammo.  More likely we sell off sharply to retest Mon lows than fill the gap back to Tuesday’s open but flat is easiest

    BMY/Dflam – You bought back Dec $23 puts for .21 why?  Because you thought we’re at the top of a good run, right?  Well then why not wait for a dip to sell the puts?  You don’t have to squeeze yourself all the time, you can buy low and sell high within the ranges. 

    EDZ correction!  Apr $2s at $3.75, seling Apr $5s at $1.75 is $2 on a $3 spread, so a 50% upside if EDZ holds $5 (now $5.61).

  95. 100KP
    "…I’ve alread arranged speciall access for Premium Members to be able to use their new "Survivor Spy" system that let’s people view the Real-Time changes to a Portfolio. "
    Phil, How do we do this??

  96. Phil: I do not know that you saw my late BIDU comment yesterday: traded the channels effectively with callers and putters and collected good $ to improve my position, repeatedly the 20/40 cents game.
    today the opportunity is less, still had 6 green trades, now BIDU recovering, wonder where it will end up.

  97. Phil/SPWRA  Would you start to scale in at this point?

  98. Funny that now NY is counting on the big bonuses.
    Moody’s threatens New York state’s Aa3 credit rating if it doesn’t cut spending to address a $3.2B deficit. The rating is stable for now, assuming cuts go through and that revenue from Wall Street bonuses exceed the state’s projections.

  99. Good post on GS this morn Phil ….
    Of course it must be an error if the dollar goes up.  Timmy and Ben are out to crush it.  No up moves may be tolerated !
    Phil knows baseball too !  :grin:
    AMZN:  It WILL collapse, eventually.  Didja see WMT yesterday — "Walmart is the Walmart of the internet".  They are out to beat down AMZN.  WMT is also growing faster online than AMZN.   Do you see the arbitrage here ?  AMZN’s valuation will not hold up.  No how, no way.

  100. Oh, I see Yodi.  Didn’t realize how long it had been between posts…  Sometimes I forget to hit the commnets – very busy on expiration day! 

    Harvard professor Brandon Adams says some of the best potential traders are professional poker players: "They’re used to skirting the edge of ruin and they learn the tools of how to do that." If so, maybe Wall Street recruiters should be looking here and here.

    Unemployment was up in 29 states in October, with California, Delaware, South Carolina and Florida reaching record levels. Fourteen states are in double digits, and Michigan still leads the nation with 15.1%, followed by Nevada at 13% and Rhode Island at 12.9%.

    The European Central Bank follows up talk with action, taking a first step into unwinding stimulus measures by tightening rules for accepting asset-backed securities as collateral. President Jean-Claude Trichet has indicated the bank won’t renew its 12-month auctions of unlimited cash after a third tranche next month.

    The Fed is reportedly scrutinizing the biggest banks to ensure they have enough capital to withstand a sudden reversal in asset prices. Supervisors want to know what banks know about the strength of their counterparties, and whether risk managers have any say in bank policies.

    Barnes & Noble (BKS -1.8%) sells out its first run of Nook e-readers, and won’t ship more until after the New Year. With e-reader supply issues at Sony (SNE) as well, (AMZN) may have a bigger opening for Christmas Kindle sales.

    $100KP access/Edro – Hmm, they never got back to me with specifics.  I’m fairly sure we can still see the portfolio here:  and I think that our members can use THIS LINK to sign up with special access.  There may be a code once they get the next part up and running.

    BIDU/RMM – I did see that, you traded your way out of a jam quite expertly! 

    Eight million homes with delinquent mortgages represent a staggering 300% of the normal supply of existing homes for sale. With 3.63 million units now on the market, one million above the long-term average, an inundation of foreclosures represents a fatal death blow capable of inflicting brutal damage on the largest financial market in the world.

    SPWRA/1020 – Yes, I still like them down here.

    Gold looks like it’s going to either break way up or way down.  Since oil is at $77.50 I have to think gold’s move is fake but that doesn’t mean the UGL Apr $53/54 bull call spread for .25 (10% out of the money on 2x ultra) can’t be pared with a 1/3 sale of GLL Apr $9 puts at .90 (5% out of the money).   So if you sell 3 GLL puts for $270 you will have 300 shares put to you at $9 if gold breaks $1,200 but you are also buying 10 of the spreads for $250 and those pay $1,000 if gold breaks $1,250 so GLL would have to fall to $6 before this is a losing trade.

    I have been considering DIA calls but I’m just not seeing us going higher than this.  It would pull too many stocks off the pins and that just doesn’t seem likely.

  101. Thanks Phil

  102. Ugh, I didn’t miss much today.
    Just sold  those AMZN Dec 135/Nov 130 bear call verticals for 2.70 (bought Tues for 1.50). I think Cap is totally right they will get crushed. Prediction: when AMZN falls to 110, almost everyone here will get out, grateful that they finally got their money back. Then, we will watch on the sidelines as AMZN slides back into the 60s (not that anything like this has ever happened to me, lol).

  103. I hear ya. Unfortunately on that trade, I was out most of the day for my daughters’ Thanksgiving school lunch and plays and couldn’t pay much attention or else I would’ve listened. I was just going for the preemptive strike on one of your favorite lines. hehe

  104. Felix Salmon says SEC Surrenders to the Oil Industry

    What are the consequences of allowing multi-billion-dollar systemically important multinational corporations to report their assets using proprietary mark-to-model tools involving discredited Monte Carlo simulations? I think we all know the answer to that one. But unbelievably, after such shenanigans contributed enormously to the greatest financial meltdown in living memory, the SEC is now set to allow more or less exactly the same thing in the oil industry.

    Otto points to a stunning report by oil consultant Alan von Altendorf which spells it all out. Up until now, oil companies needed to actually prove they had reserves before they reported proven oil reserves. Now, however, the SEC is allowing them to use internal, proprietary computer models to essentially pull their “proven reserve” numbers out of thin air (or the nearest friendly Monte Carlo simulation).

    Von Altendorf goes into great detail about how such numbers are useless and meaningless, and how the “proven reserve” rules should probably be tightened, rather than loosened, given the number of enormous write-downs in proven reserves which have taken place across the oil industry in recent years.

    So what’s the SEC thinking here? Frankly, it’s not thinking at all: This is just another case of regulatory capture. And a sign that, so far at least, nothing has changed at the unsalvageable and dysfunctional institution.

    Wow, did they wait for me to write that I didn’t think we’d break up to break up?  LOL – well, I still am not buying it.  I wish I could but I can’t.  I won’t short it but I won’t go long either. 

  105. Phil : It’s starting to get scary when u read my mind.

  106. Phil,
    New to your board. In the limited time I’ve spent here, I haven’t seen you refer to EEM or other international ETFs.  Do you trade them?

  107. Oh yeah, you reminded me of something in your analysis. Even though IB sucks on their interface, they calculate margin at 20% (minus option value on writes, I think) not 50%, and I’m Reg T margin, not Portfolio Margin. So, that is at least one major benefit of them.

  108. Stevenparker, the book is:
    Options as a Strategic Investment, Lawrence G. McMillan
    It can be a rather dry book.  I got 2 things out of it: a) if we are looking for a total return, sell the callers ITM.  Selling OTM means we are bullish on the stock and leave the downside pretty much uncovered; b) when rolling shorts diagonally, up and out a month, we can increase the number of contracts so that it’s a credit roll.  The market would usually reverse at some point and we’d recover any losses.
    The book also covers Delta neutral plays and so forth.

  109. It seems you can bank on GOOG  getting pinned or being very stable on option expiration day. Today I bought a 560/570/580 Call Butterfly spread (+2,-4,+2) and watched it slowly grow in value all day and just closed out the 560/570s for a 10% profit in 5 hours.  570 Put open interest started the day at 5374 and todays volume is 17,000 so far! About the same pinning pressure on the call side (5298 OI, 11448 volume at 2:52PM).  Thanks GS!

  110. How about a KRE play that allows us to collect the dividend?

  111. Peter D- do you do short strangles on TBT? If so, what are the strikes for Dec/Jan?

  112. NY/Cap – Good point but depserate people clutch at straws.  A nice 10% special tax on bonuses would balance the budget very nicely don’t you think?   Notice COF finally got real today, glad I rode those short $38 calls!  AXP also being nice and expiring those $41 calls at 0. 

    So you guys can see what I was talking about – they tried to rally the market but there’s too many big stocks pinned to strikes to get anything going.  That seems to indicate that the Gang of 12 are not all on the same page at the moment and that can lead to some very ugly swings along the way. 

    Mind reading/Dflam – Try this:

    Welcome Judahbenhur (great name)!  We’ll trade anything.  Right now we are short EDZ (ultra bear emerging markets) as a way to play a pullback in BRICs, commodity sell-off, collapse of Russia, rise of the dollar or fall in China and, just to be sure, we’re also playing FXP (ultra-short China) as we REALLY think China has a long way to fall.  What’s your international investing premise?   Oh yes, and we have some EWJ longs in case we were wrong and things go well (we weren’t and they aren’t). 

  113. Hi Phil Pls just give a bit clearer expl for placing an oder on the below. GLL trading at 9.57 thanks

  114. Phil,
    So after pinning  OE do we go % bullish over the weekend ?

  115.  Mind Reading…Do I get a prize if I tell you how that works?…

  116. pstas/TBT – good memory.  TBT is also one of my favorite short strangle plays.  However, I don’t have a position for December and January yet.  I was in the Nov 42 short PUT and 50 short CALL, so the current TBT price is not enticing for the same 42/50 short strangle for Dec or Jan.  One reason is that the VIX is too low.  I’m just waiting for the market to drop, then money flies into bonds, TLT goes up and TBT goes down, then the 42 PUT price would be a lot higher.  Then we sell the 42 PUT (whatever month).  The bet there is that interest rate would eventually goes up. 
    If the above scenario doesn’t play out, then we sell TBT PUT whenever some interest rate announcement comes out.

  117. Phil,
    I’m still holding the FXP Jan 2011 5/8 call spread hedge. If we are expecting a pullback in China, should I take out the $8 short calls as they are >50% profit and let the 5s marinate (my word for sitting there for an appointed time) or even add to the position?

  118. Hi, What’s the stance on DIA Mattress?  1/2 cover over the weekend?
    I had been busy almost the whole day.  Just got back and have not a chance to read any comments yet.

  119. Sorry phil this is the part I did not inclose
    So if you sell 3 GLL puts for $270 you will have 300 shares put to you at $9 if gold breaks $1,200 but you are also buying 10 of the spreads for $250 and those pay $1,000 if gold breaks $1,250 so GLL would have to fall to $6 before this is a losing trade.

  120. Since you asked, I’ve been long since April and think they’ve topped out.  My international investing premise is that people have poured money into EEM and others without much of a sense of the underlying assets, so when the market turns, people will flee from the BRIC ETFs faster than others.  Of course, the market has to turn first. 

  121. Peter – I went back and read your post from the last 2 days.  Any more thoughts on the RUT Dec 620 520/530 strangle?

  122. NY/Cap – Good point but depserate people clutch at straws.  A nice 10% special tax on bonuses would balance the budget very nicely don’t you think?
    Very clever for sure. Should be good for property prices in parts of New Jersey as well….

  123. JRW look at the dow chart after every 3rd week of the month the markets tank like clock work

    GOOG pin
    October 23, 2009 – Stock Price Clustering at Options Expiration
    A reader commented: "Re ‘Clustering of Market Closes Near Round Numbers?’, the situation in which clustering is important is at option expiration on stocks with heavily traded options. Professional option writers maximize profit when the underlying stock closes near to the strike price at which the open interest is highest. Look at GOOG and how close it gets to a number divisible by $10 on that one day a month. The odds of closing exactly on such a number are 1/1000. Look at May 15: $390.00. Only the August expiration price for GOOG was not close to a ’10′ number."

    Personally i feel its natural market function, no one can control the stock markets you’d be crazy to think that….now back to our regular programing here on CNBC

  124. Rolling/Peter – Good point.  Goes to the same concept as scaling in – if you manage your position sizes early on, you can add a little more risk as you reposition for a pullback. 

    Nice playing CSW.  Those things are great until they’re not, then they can really sting. 

    KRE/Stock -  That’s not a bad idea.  Safer than playing the individual banks.  At $20.75, you can buy it an sell the March $20 puts and calls for $2.85 and that’s net $17.90/18.95 so a bonus $2.10 (11.7%) if you get called away in addition to the dividends.  Collect $2 3 times a year and this is a nice little play

    GLL/Yodi – Well the spread above had nothing to do with buying GLL, it was a trade that can make money on gold in either direction (but mostly up).   If you want to buy GLL, I think I’d buy the Jan $8s for $1.70 and sell the Jan $9 puts and calls for $1.35 so you are in for .35 with a 177% upside and a put to price of $9.35.  You can manage that play by keeping a finger on the Dec $9 puts, now .25 as a cover if gold pops $1,150.  These ultras on gold are very dangerous though and it’s probably not a good trade for you.

    Weekend/JRW – Nope, same 1/2 cover we came in with, the March $105 puts 1/2 covered with Dec $104 puts, now $2.45.  That’s still 55% bearish and I’ll be very pissed if we open down 200.

    Prize/New – No revealing secrets!  That one took me a while to figure out too…

    ZION still going down.  Qs right on 43.50.  XLF 14.62. 

    FXP/Ac – I agree, with so long left it’s worth pulling the $8s down with a 50% gain.  As to the rest, you can always ad more once we get a good break-down in China and then sell more covers.  If anything, I like the roll down best as you spend .60 (no more) to roll down $1 of intrinsic value. 

    DIA/Cwan – Yes, 1/2 cover.

    Wow, they sure are trying to get something going into the close.  Desperate to pin green on the Dow. 

  125. For the record, I hope Brandon Adams is a better teacher than he is a poker player.

  126. This looks like either 11/9&10 or 11/17&18 either way, Monday opens with a GAP !!

  127. Jesus, I hate doing things at the last minute.  Just sold DIA Dec $104 at $2.31, because it was slipping away.  1 Minute after my order got filled, I saw it flying to 2.41.  Damn!
    Oh, well.  Better late than never.

  128. Phil thks for the advice on GLL

  129. Guys, need help with math
    KRE/Stock -  That’s not a bad idea.  Safer than playing the individual banks.  At $20.75, you can buy it an sell the March $20 puts and calls for $2.85 and that’s net $17.90/18.95 so a bonus $2.10 (11.7%) if you get called away in addition to the dividends.  Collect $2 3 times a year and this is a nice little play.
    how I understand 18.95 is break even point, how it is calculated?

  130. optionsxpress
    opened account week ago just to try them, my opinion after one week so far: platform – sucks, execution – sucks, comision – high
    anybody have different opinion?

  131. ssdirk/RUT – you can go for 630/520 strangle as it gives plenty of cushion either way.   Then do 1/2 620/530 strangle as it’s more risky.  This is a synthetic for a 625 short CALL, but there is no such strike.   You have until 4:15 PM to sell it.  But there is no hurry as it’ll be there next week (may be less or more credit) .

  132. Nice short squeeze on MRK after the recent bad news. 10% short interest and almost 9 days to cover, that must have been a prime indicator for HAL 9000 to go to work.
    Can’t complain though as I am long

  133. I use Optionxpress for futures and Scottrade for everything else, never had any problems…

  134. tchayipov
    Just try TOS think or swim Many guys here I think trading with them super platform

  135. Premise/Judah – Cool, I agree with that one!  So we love EDZ as a way to play it, especially since you can buy the stock for $5.57 and sell the Jan $5 puts and calls for $1.75 and net $3.82/4.41, which is a 20% discount if it’s put to you and 30% profit if called away at $5 – not a bad 60-day play

    GAP/JRW – Which way?

    Well, it was a vailiant attempt to push the market higher but it failed. 

    Very iffy finish and no change to our stance (55% bearish, DIA March $105 puts 1/2 covered with Dec $104 puts) and it was an ugly way to flatline into the close. 

    Monday should be interesting, it’s all up to the dollar I think.

    Have a great weekend!

  136. tchayipov at TOS you get that trade for 3.80  break even 16.20 and on the up 23.80 to get that second number of 18.95 I think they take the stk price and deduct the caller. but I might be wrong. It was actually explained a while ago but possible some one else could pls confirm this

  137. Looking forward to the new 100k
    All have a nice week end

  138. Peter D:


    So chaps and other folks on buy/write, we should sell the short CALL ITM to give downside protection and short PUT OTM.
    Peter. I’m gonna look at various downside protection schemes when I can. I was starting with Phil’s mattresses as a base case. Are you talking about using SPX here? If so, with front-month options?

  139. KRE/Tcha – It’s just the net entry of $17.90 plus the $20 you will have more stock put to you at (under $20) divided by 2. 

    OXPS/Tcha – I left them for TOS.

  140. yodi/
    I using TOS, so I compair Optionsxpress with TOS
    TOS is much better
    I input same spread positions to TOS and Optionsxpress: so more than 50 % of time TOS executed order but optionsxpress not ( may be because they charge additional ticket price and have interest that all spreads legs will be executed separately???)

  141. Hi, Peter D, two questions for you:
    (1) Yesterday after market close, I happened to look into SPX Nov option chains, and noticed that the last trade of my callers at $1125 strike was $0.10, and the bid/ask before close was $0.10/0.20.  The bid was still positive. Lower strike calls have even high bid prices.  I guess it’s due to the fact that valuation of SPX is based on the opening price of S&P 500 stocks on the next day.
    So, what’s the chance of SPX flying to the moon the next morning?  Do you know of some research papers on this subject?  In the past 10, 20, 50, years, how ofter did SPX gap up x% overnight?
    On the conservative side, I wonder if I should have bought back my callers at $0.10 plus commissions?
    On the aggressive side, I wonder if it worthwhile to sell a few calls at $0.10 or $0.20 just before close?  I don’t mean to do such deals on every expiration.  But we could use some good judgment.  Take yesterday as an example, what’s the chance SPX flying to $1125 or $1120 or $1115?  On the other hand, I wouldn’t sell puts yesterday.
    (2) I also saw SPX has weekly options.  Do they work the same way as monthly?  That is, do they expire on Thursdays and are they evaluate by the opening prices the next morning?  Are they worth playing (vs monthly)?

  142. KRE/ Phil got it, thanx
    have a good weekend everybody

  143. Phil,
    how can I contact you? I’m interested about your hedge fund

  144. I contacted Scott at thinkorswim regarding commission discounts, after I saw someone mentioned in yesterday’s post that PSW members could get $1/contract commissions.  Scott replied within an hour.
    With Scott’s permission, I am posting his email below:

    The simple answer is that Ameritrade has begun to limit my ability to
    change rates.  The $1.25 per contract rate that you have is really for
    somebody trading 1,500 contracts per month (the stated PSW rate is
    actually $1.50 per contract).  To go to $1.00 per contract we look for
    2,500 contracts per month.  I can not change your rates at this time but
    will be happy to revisit the issue should your volume approach the next

    Enjoy the day,

    Scott Sheridan

  145. I’m doing a 5:25 interview on, will post later.

  146. cwan/
    what about ticket fee? do they ofer only $1.5 per option whithout $10 ticket fee?

  147. good interview Phill, voice was little bit delayed but I geuss you didn’t need to go there and wait for 1 hr

  148. Interview/Tcha – I hate these short formats, I wanted to get more into that job creation thing.  That was an interesting topic.

    OK, I got the info back from WSS for the $100K Portfolio:

    Hi Phil, 

    Your members can subscribe to spy on your regular WSS account PhilStockWorld by clicking:

     The product is priced at $49.95/month. To get discount, the subscriber must enter the coupon code “spyonphil”.

    Please note following:

    1.       This link is only accessible by wallstreetsurvivor users only. So, your members must first register for FREE at WallStreetSurvivor by entering a valid username and Email.

    The survivor spy email alerts will be sent to the Email address specified at the time of registration.

    2.       The coupon expires on 31st Dec 2009

    3.       There is a limit of 200 coupon uses

    4.       Each subscriber can use the coupon only once

    5.       The subscribers will instantly receive ORDERS PLACED in all your portfolios on WallStreetSurvivor (username: PhilStockWorld)

    a.       Stock Portfolios

    b.      Option Portfolios

    c.       Permanent Portfolio

    With this coupon, your first 200 subscribers will get FREE LIFETIME access to your “survivor spy product”. Thereafter, each subscriber would be charged $49.95/month.

  149. Guys:
    Need your input/help on the conservative div investments we’ve been discussing. We’ve been talking about front-month ATM buy-writes. When you look at the expiration P/L graph on a buy-write, you make the premium if the stock finishes at the strike or above, and lose $2 per dollar decrease from the strike. The $2 decrease is because of your long stock position and your short puts both moving against you (double loss on downturns).
    Let’s say we’ve got these buy writes on a basket of 10 stocks.
    If the market is going to hell in a hand basket, all your stock positions will be below your strike (your sold puts are going deep into the money), and your intra-month delta on each individual buy-write will be getter higher and higher, but it can’t get higher than 2. So let’s say it’s 2 for all of your positions in the basket. That’s based on each position’s delta. Since these are conservative stocks, whose average beta is about .71 compared to the DIA,  you’d have an overall DIA-based beta of 1.42 (.71 x 2) on your basket, meaning your "going to hell in a handbasket" basket has a moves 1.42% for every 1% movement of the DIA.
    I figure a theta-neutral DIA Phil mattress hedge has a DIA-based beta of about -5.2% – again, % change as a % of DIA change.
    I figure the annualized premiums plus dividends on this basket is about 53% of your investment in the stocks. You’d only get this unhedged return if you "won" every month by finishing each month at or above your strike. So let’s take the worst case and hedge against the scenario where we’re losing big every every month because the market is tanking. I’ve got to offset the worst-case 1.42% DIA-based beta from above with Phil hedges with -5.12% DIA-based beta. Since 1.42/5.12 = 27%, I’d be investing an additional 27% in hedges when the market is going south on me.
    53% / 1.27 = 42%. Does this seem right? Doesn’t seem like you’d be able to make that in a tanking market.

  150. tcha / TOS commissions:
    It’s $1.50 per contract, no ticket fee.

  151. chaps
    I don’t think you should hedge your portfolio for worst case (this way you will lose during normal market condition) I think better just to make portfolio delta nutral and if market start get creasy and your portfolio delta change you should adjust it accordingly (but it is good idea to have reserved money for worst case hedge)

  152. cwan
    and did you get $1.25 and no ticket?

  153. Tchay:
    I’m assuming what you’re suggesting. You adjust your hedges to market conditions. If I always hedged for worst case, it a best-case market the beta of my basket approaches zero and my Phil hedges are losing 5.21% per 1% increase in the DIA. You clearly don’t want that.
    What I’m asking is that if you dynamically adjust your hedges, would you make 42% in the down market, or is there some flaw in my logic? If the answer is the former, then you could enter these positions at any time and make roughly 42% or better, if you’re willing to put in the work in adjusting your hedges. Hence, in contrast to how we normally think about buy-writes, current price of stocks is not such a big concern. With dynamic hedging, your return would be between 42 and 53%, independent of market direction. So if the market went down for 10 straight years, you’d make 42%. Doesn’t seem right.

  154. Chaps
    that potential only theoretical, very often stock move regardless what market doing (SPWRA drop is good example)
    another issue: let’s say that you have a stock and sold ATM calls and puts and stock moved 15% up during last month,your cal will be so expencive so to move your call and put to higher strike and next month will not make you any money, (you can say that you will make some from stock price increase) but next month stock will move same 15% down and you again wont make anything from premium(even can lose)
    this is why it is important for this strategy to have slow movers and/or try to timing market to sell options in right time

  155. Phil — what’s the Wall St. Survivor thing?  Is there something there I’m not getting here?

  156. jcmcn5
    phil starting new 100k portfolio next week, all positions and transactions will be there and they even send e-mail alert as soon as Phil make any transaction, so if you plan to follow this portfolio, better to get this service

  157. Good News:  Obama fixed Global Warming !
    Scientists Baffled by Global-Warming Time-Out  
    From Der Spiegel:

    Global warming appears to have stalled. Climatologists are puzzled as to why average global temperatures have stopped rising over the last 10 years. Some attribute the trend to a lack of sunspots, while others explain it through ocean currents.

    At least the weather in Copenhagen is likely to be cooperating. The Danish Meteorological Institute predicts that temperatures in December, when the city will host the United Nations Climate Change Conference, will be one degree above the long-term average.

    Otherwise, however, not much is happening with global warming at the moment. The Earth’s average temperatures have stopped climbing since the beginning of the millennium, and it even looks as though global warming could come to a standstill this year.

    Ironically, climate change appears to have stalled in the run-up to the upcoming world summit in the Danish capital, where thousands of politicians, bureaucrats, scientists, business leaders and environmental activists plan to negotiate a reduction in greenhouse gas emissions. Billions of euros are at stake in the negotiations.

    Have a good weekend everyone …. stay cool !   :mrgreen:

  158. chaps/4:16PM post – no, I meant that your callers are In The Money, so that you lower your breakeven point and lower the potential loss.  For example, stock ABC is at $50, I’m suggesting to sell the CALL at 48 or lower if you can.  You’d get less extrinsic (therefore less profit), but you don’t loose the full profit until ABC is lower than $48.  This is why I’m avocating to start buy/write at a bottom so that we have more confidence to sell ATM.
    For hedging, you can do the DIA mattress stuff, or may I suggest something that seems more simple, buying DIA verticals that are OTM.  For instance, we sold buy/write ATM and start loosing when the market has droped 5%, so that’s when our hedge needs to kick in.  Let’s say you got 7% credit from the buy/write, then we can use 2% of the credit to buy DIA vertical that are 5% Out of The Money.  DIA Dec 99/98 PUT vertical is only $0.15, so you’d win 6x (12%) if the market drops 5%.  Basically, if the market drops 5%, you got the 12% from the hedge and 0% from the buy/write.  Effectively, you have moved the breakeven point from -7% to -15%, but cap the profit at 5%, rather than 7%.  There is much less hassle to deal with the DIA callers.
    Then you can get fancy with the PUT vertical, DIA Dec 94/91 is only $0.11 and pays a maximum of 27x minus commission.  So on a big market crash, you are covered down quite a way.

  159. cwan, I wouldn’t touch the weekly as the volume are very low, but the quarterly is not bad.
    SPX expiration - I forgot who posted this link about the jump from Thursday to Friday, but it’s eye opening that we should not  sell index CALLs or PUTs on Thursday prior to expiration:

    Snipets: AM Settlement Example with RUT
    The RUT closed on Thursday, August 14 at 754.38 and according to the stock chart/ticker tape the RUT had an opening price of 759.26 on Friday, August 15. Since the RUT is AM settled, it would appear that any bear-call credit spreads position with a short call option strike price greater than 759.26 would be 100% profitable, i.e. 760, 765, 770, etc. However, the final settlement value for RUT was determined to be 765.07 – almost 6 points higher than indicated by the opening stock chart/ticker tape value. With the 765.07 settlement value for RUT, all of the bear-call credit spreads positions with a long call strike price of 760 are now much less profitable than previously thought. As an extreme example, the bear-call credit spreads position for the strike price combination of the 760/770 went from profitable on Thursday afternoon to a loss of approximately 50% on Friday.

  160. Tchayipov:
    Yes. It’s theoretical on one level. But practically, I’m trying to understand if you can make money doing this even when the market is relatively high. If theory says there’s a big cushion even in a high market, then in practice money can usually be made.
    I agree it’s important to have big, slow-moving stocks because they are more strongly correlated with the market – they are a big % of the market. More specifically, your hedge must be correlated to what you’re hedging, obviously. As you say, stocks can have violent swings based on their specific business conditions that are not related to the market – therefore, the focus on big, conservative companies, which should correlate well with DIA or SPX (assuming your hedges are based on DIA or SPX.)
    I understand about making or not making money in a given month when you consider premiums versus stock movements (where you can actually lose a lot when market falls enough, etc.), but this is specifically what you’re trying to hedge against with the dynamic hedges. It is not a perfect hedge. There is no such thing, and it will work better if you adjust frequently and the market doesn’t move too violently on you overnight, etc.
    When the market is going up, the dynamic hedging goes down towards zero (beta of underlying basket approaches zero, telling you to take off hedges with their negative beta.) When the market is going down, beta of underlying basket gets positive (sold puts are falling ITM), telling you to increase your hedges to compensate for you losing on your long position and short puts. Not perfect, but it’s different than having no hedges and just selling premium against movement in stock price during the option duration.
    I see it happening everyday in my portfolio of these stocks. When the market was going up, my portfolio beta was falling because most of my positions had stock prices above the straddle strikes. As the market has been going down the past several days, more of my positions have their stock prices falling below their straddle strikes, the beta of the overall portfolio is going up, and the portfolio is calling for more Phil mattresses. My increased number of Phil mattresses is making up for the (relatively small, compared to the market) fall in the (unhedged) portfolio over the past several days.

  161. tchayipov — thanks.  We can’t get the info here? 

  162. tchayipov — thanks.  We can’t get the info here?  we need to subscribe to another service to get access to it?

  163. sorry for the dupe folks

  164. jcmcn5
    I think you can, but I guess this way its more convinient (especially if you can not monitor market in real time)

  165. Peter/ hedging
    I like your idea of hedging, just couple of questions:
    1. let’s say that market crushed and your hedge worked just fine, what you plan to do next: close it with profit and leave portfolio unhedged? or get another (lower hedge)?
    2. Let’s say market continue to go higher: when and how you recomend to adjust your vertical? Logicly if you cover buy/write positions and they up with market, you don’t need to adjust your hedge because to start loosing in your buy/write positions market need to drop more, but what about new buy/write positions which didn’t move yet?
    little bit complicated but defenetly interesting idea to think about it

  166. tchayipov, good questions on what to do next.  I’m waiting for Chaps as he’d logically get there soon.  There are many many combinations that can play out.  Phil often calls it a chess game where we need to be 3 steps ahead.  Your questions are good in that you are already 2 steps ahead. 
    1. Definitely close the hedge with the profit.  We still have the buy/write to deal with.  A second set of stocks would be put to us (I would roll the short PUT to next month to avoid the stocks get put to us).  Depending on how we feel about the market, we might sell ATM, ITM or OTM.  Each one has pros and cons, and I wasn’t kidding when I say that Chaps would get there soon – just wait.
    2. The idea is to hedge as soon as we start the buy/write.  So the market going up is the case where we take the 5% profit and forget about the hedge, which would likely expire worthless.

  167. peter
    LOL, I agree, I think if we plan to make 20% in 2 month with our buy/write position, we can dedicate 30% of potential profit for this kind of hedge and forget about it for the same 2 month, and hedge blocks of our positions/strategies individually and forget about delta nutral nonsence……
    By the way, I like your idea to hedge 5% crush and 20% crush separetly

  168. Peter,
    by the way, I’m Russian and in my teen age was pretty good chess player, but looks like now I can think only 2 moves ahead))))))

  169. Hihihi, I know you are Russian from the name.  Which part of the country are you from?

  170. Hi, Phil,
    I just logged into WSS and used the coupon code to place my order.
    I went through the entire ordering process.  At the end, the receipt still showed that they would charge $49.95/month to my credit card.  But I thought it would be free for the first 200 subscribers.  Are there already THAT many people signed up in 6 hours??
    My login name at WSS is tttrading.  Please check with WSS.

  171. Peter,
    I live in Canada/ Calgary for 15 years, but originaly I’m from Moscow, and still work in Russia as a consultant,  I’m petrolium engineer and consult american companies (Halliburton, Schlumberger, Becker,Wetherford) how to make money in Russia,
    work 30 days there/ 30 days home

  172. by the way, I was big fan of iron condor strategy using SPX,RUT, DIA options and double my money in one year and loose all my profit in one month when market crushed and deside to stay away from this strategy for now

  173. Same issue here with WSS, entered coupon and they want $49.95/month..I hope there is some sort of mistake here.  The 100K portfolio is one of the main objectives in my membership here.  If that goes away…..

  174. AMZN – It’s stuff like this that will help keep the price up for now, at least. The numbers don’t add up to the lofty valuation but who cares?
    In any event, I need clarification on your suggestion from Friday on adjusting my AMZN short call positions.
    My question was:
    AMZN- Now that we are going to be past Nov opex; I am starting to think about my options re: short calls. I have – all Dec- 1 105; 1 110; &  2 120’s. Basis is $3.65; $6.58 & $4.45 respectively. Sitting tight for now – planning on rolling forward until sanity returns. Other action I could take under consideration?
    You replied:
    AMZN/Pstas – You just want to roll to max premium.  You are in for about $20 avg on 4 and you can roll to Jan $120s at $13, either rolling 1.5x to put them in 50% premium of rolling 1x and selling Apr $110 puts for $6.20.  I like the spread because you are selling $11 in premium, double what you sell with just the calls and I know it is very tempting to just play AMZN to die but they’ve been super-solid since they went up and it’s going to take a lot to shake all those investors that came in above $120 out of that stock.
    If I understand corrrectly- the choices are:
    1. Roll em, roll em
    2. Roll all the short calls to 1.5x (approx) Jan 120′s @ 13.
    3. Roll all the short call to 1x Jan 120′s @ 13; sell April 110Puts at 6.20.
    My questions are:
    1. Under option 3, is it 1x the Jan 120′s plus 1x the April 110 Puts?
    2. I am a bit margin challenged right now and needing to hold some in reserve. What about rolling just the 105 & 110 to Jan 120′s for now plus 1x short April puts?

  175. USG- your thoughts on a buy/write on USG- Jan 11 15′s p/c for 6.84 +/- means about $7/$11- 114% call away.
    Or- what about the Jan 10/15 call spread?

  176.  WSS – I had same problem first time through.  On second pass realized there is another place to input the coupon; look for category "Coupon or Gift Card". Then it did not request credit card info.

  177. cwan – I just joined for free….keep going to the last page.

  178. Update note on signing up for following the $100KP on WallStreetSurvivor (see last night’s alert).

    It seems you have to input the code twice.  Look for where it says "Coupon or Gift Card" and put it there and they should NOT charge your credit card. 

    If you did get charged by accident, contact WSS customer support at:

    And let them know you had problems with the coupon sign up.  Sorry but we have no direct control over those guys. 


    - Phil

  179. tchayipov, that’s a cool job.  Calgary & Moscow are both very cold places.  My Dad went to Moscow once in the 1980s in January.  It was so cold, something like -25 degree C, his boots were frozen and broken the first day he was there.  He managed to borrow those fur hats for venturing outdoors. 
    Yeah, I lost a bunch of money on Iron Condors too, but gained them all back with short strangles.  Since you are in the oil business, let’s get some OIH or OSX short strangle plays for fun.  I like OSX better has it has more premium to sell than OIH.  However, the liquidity sucks, just like SPX versus SPY.  Before I look for strikes, would you analyze the OSX chart and let me know what is the support and resistant lines for 4 weeks (for December contracts) and 8 weeks (Jan contracts)?

  180. Peter/ OSX
    I see resistant at 210 and 225
    support: 175, 160, 140

  181. Peter,
    when I go to Russia to visit drilling and production places in north Sibiria – minus 40 -50 C is not unussual there for winter, but people so worm and good you can not amagine.

  182. Peter, thanks for the info on the RUT strangle.  I am following you and tchayipov’s messages.  When is it better to use short strangles vs. iron condors and vice versa?  Will short strangles provide better profit and downside protection if the market tanks?  Are short strangles easier to manage?  Thanks.

  183. Peter, one other question: In looking at your suggested RUT strangle on TOS I see a 76% chance (as of today) of finishing even or better.  Is that correct?

  184. ssdirk
    what I found worst about iron condor – when market get creasy, bid/ ask spread became so huge, it is imposible to adjust your position – it is loose/ loose situation,
    I think with short strangle it is little bit better because less options involved

  185.  tchayipov, in this market what strategies are you employing:  buy/writes, short strangles etc. mostly?

  186. I don’t do strangles yet, mostly buy good stocks or ETFs (preferably cheep/less than $20) and sell ITM calls and puts couple of month ahead with 20-30% profit potencial in 2 month,as soon as I get about 75% of profit potencial I close position (it is hard to squiz last 25%)
    and for good expencive stocks (more than $20) I buy ITM Leeps and sell ATM calls and puts monthly
    for hedge I buy/write short ultra ETFs like SRS, EDZ, ERY, DXD and others

  187. Ssdirk/
    I found that short strangles/ iron condors is very dangerous strategy – you can generate good 5-10% monthly during a year or more and in one month loose all your profit for a year, you can play it for fun, just my advice – don’t add to these strategies – use profit somewhere else

  188. tchayipov, thanks for OSX resistance and support.  Hm, those are hard to play.  The OSX Dec 170 PUT is $2.025, and the Dec 210 CALL is $1.175.  That’s a 10% cushion on each side, which doesn’t seem to be much for OSX.  Total credit is $3.2, initial margin on Reg-T is $1,900, but can increase to 20% of the underlying, i.e. $4,000.  So the estimated return is for $4,000 margin is 8.4% for a month IF OSX doesn’t drop or gain 10% in the next few weeks.   There are options for adjustments, but we’d save that for later.

  189. ssdirk, Iron Condor has its merit, but it’s all or nothing strategy.  If the stock stays within the inner condor, you’d win all, and if it moves beyond the short strikes, you’d loose all.  The profit can be large in terms of percentage, so position sizing is critical.  For example, for OSX, the short iron condor would be:
    - Sell 170 PUT, buy 165 PUT, sell 210 CALL, buy 215 CALL
    - Credit amount is $1.17, max loss is $3.83 (5-1.17), so max profit potential is 30% (1.17/3.83)
    So if you’d like to target the 8.4% profit just like the Short Strangle above, you’d commit 27.5% of your budget (8.4%/30%).
    Let’s analyze the case where OSX expires at $165.  The loss on the short strangle is $1.8 (the short 170 PUT is $5, but you got $3.2 credit, so loss of $1.8).  So for the $4,000 per contract budget that we had for short strangle, we loose $180, which is 4.5% of the total account value.  For iron condors, you’d loose 27.5% of your total account value. 
    What if OSX expires at $150, the short PUT woudl be $20, resulting a loss of $16.8, which is 42% of the buget, versus the 27.5% loss on iron condor. 
    Now, let’s look at a buy/write of OSX and selling 187.5 Straddle for $15.45.  The breakeven point is $173.55.  IF OSX expires at 165, we’d loose $17.1 (half from the short 187.5 short PUT and half from the underlying stock), which is 9.8% ($17.1 loss divided by 189 – 15.45 credit).  For OSX at 150, the buy/write would loose $47, which is 27%.  If you do the straight stock purchase, you’d loose $39, which is approx 20.6%.
    So if I didn’t have any maths error, the summary is:
    - OSX expires at $170, the stock purchase would loose -12.7% ($19), buy/write at 187.5 strike loose -2%, iron condor gains 8.4%, short strangle gains 8.4%
    - OSX expires at $165, stock would loose 12.7%, buy/write loose 9.8%, iron condor loose 27.5%, short strangle loose 4.5%
    - OSX expires at $150, stock would loose 20.6%, buy/write loose 27%, iron condor loose 27.5%, short strangle loose 42%
    You can create a spreadsheet to analyze these scheme.   For comparison purpose, short strangle requires 1/2 the amount of trading commission, and is much easier to roll.  This is critical a critical adjustment.  Say if OSX drops to $170, we can roll the Dec 170 to 155 for about $5.3.  The $5.3 cost is estimated by looking at the CURRENT At The Money roll from Dec 190 to 175.  So by spending $5.3, we reduce our short strangle loss from $16.8 to $2.1, which is only 5% of the account value.  Of course, we can roll down the short CALL to cover some of the cost of rolling the PUT.  We can get about $0.9 to roll the Dec 210 down to 195 or so, with the stock is at $170 then.  So our loss is further reduce to $1.2, which is only 3%.  If OSX would indeed expires at 150, the stock holders would have loss 20% versus the short strangle loss of 3%. 
    That is why I love the short strangles as the risks can be cut down significantly with one roll.  Anyone have tried to roll an iron condor would tell you that it’s very difficult.
    I’m no way selling the short strangle strategy, it just works fabulously for me as I’m playing indices and selected ETFs that don’t move 20% in a month easily.  Now, I need to save this post for future reference as doing the maths again would be tedious.

  190. Peter
    thanx, so how I understood, if you have to roll strangle (probability should be less than 20 -30%) you will probably loose your monthly potential income ( I mean: you expected +7% and got -3-5%), not bad
    could you publish you list of ETFs which you play with
    I checked SPY – not very exated ( more or less safe strangle less than 5% per month)

  191. Peter and tchayipov thanks for such wonderful answers.  I appreciate your time in trying to educate others on your strategies.  Hopefully one day I can do the same.

  192. tchayipov, I play with RUT, SPX, NDX, OSX, and XAU.  Used to play the ultras, TNA, TWM, QID, QLD, UPRO, TBT, but don’t know if I could play the ultras with the increase margin coming on Dec 1st.  Will see.

  193. Chaps/Dividend stocks – interesting article: